The City of Long Beach must pay a mortgage holder $273,500 in damages plus attorney fees for demolishing an apartment building without providing adequate notice to the lender.

Although the city went through an extensive process before demolishing the dilapidated building, the city sent all but the final notice only to the property owner. New Jersey-based D&M Financial Corporation, which held a trust deed on the property, did not learn the city planned to tear down the building until the day before demolition began.

In upholding a trial court ruling, the Second District Court of Appeal determined that the city failed to follow its own ordinance and failed to provide D&M Financial due process.

“[T]he city’s own ordinance requires express notice to mortgagees of orders and notices which affect buildings or structures found to be unsafe, dangerous or substandard. The city failed to comply with those requirements even after it had actual notice of change of ownership and actual notice that D&M Financial held a security interest,” the Second District ruled.

In May 2000, a building inspector for Long Beach inspected the vacant, four-unit apartment building on Henderson Avenue. Two months later, he sent a “notice of substandard building” to the then-owner and then-trust deed holder. Shortly thereafter, the city recorded a “declaration of substandard property” with the county recorder.

In November 2000, the city’s Board of Examiners, Appeals and Condemnation (BEAC) ordered the owner to demolish or rehabilitate the structure within 30 days. Copies of the BEAC order were sent to the owner and trust deed holder, but the order was not recorded.

Before the deadline passed, a new entity acquired the property through foreclosure and got permits for repair work. The BEAC granted two extensions, until March 8, 2001, to complete the work.

However, in February 2001, Rahim Pashmaki purchased the property with a loan from Daaz Financial Services that was secured with a trust deed. Daaz assigned the trust deed to D&M Financial.

Ten days before the March 8 deadline, the city sent a 10-day notice of intent to demolish the building to the previous landowner. The city apparently took no further action, and a city building inspector learned in early April 2001 that Pashmaki was the new owner and D&M the new trust deed holder.

Over the next several months, the city sent Pashmaki a “Notice of Intent to Demolish,” a “Notice to Clean Premises,” and a “Notice to Pay Public Nuisance Abatement Levy,” and the city recorded a lien for costs to abate a nuisance. However, the city provided none of these documents to D&M.

On August 7 and 10, 2001, the city obtained warrants to inspect the property to prepare for demolition. The city mailed a copy of the August 7 warrant to D&M. The company received the warrant on August 13 — the same day it got the city’s “48-Hour Notice of Intent to Demolish.” Although D&M Financial immediately contacted the city, demolition commenced on August 14. D&M Financial later acquired the property for $70,500 cash.

D&M sued the city. Los Angeles County Superior Court Judge Gregory Alarcon found the city liable for damages totaling $273,500 based on the stipulated value of the building and the city’s refusal to remove a lien for the cost of demolition. The court also awarded D&M attorney fees and costs.

On appeal, the Second District ruled that D&M had sufficient ownership interest to bring an inverse condemnation action against the city, that the city violated its own ordinances and that the city failed to satisfy due process requirements.

First, the court established that the trust deed provided sufficient ownership interest for D&M to be entitled to compensation for inverse condemnation. The court then turned to the adequacy of the city’s notice to the mortgage holder.

The city contended that the July 2000 recordation of substandard property put D&M on notice and satisfied due process requirements. The court disagreed, finding that demolition was only one possible outcome of the recorded notice. Repair, rehabilitation and vacation were also possibilities. Plus, the notice was recorded before the BEAC ordered the building demolished. When D&M acquired its interest in the property, there was no recorded notice of intention to demolish, the court noted.

The city’s own ordinance requires the city to provide mortgagees with notices of intent to demolish, the court pointed out. Additionally, the city learned four months before tearing down the building that D&M had an interest in the property. Yet the city sent D&M nothing until the last minute.

“Thus the city failed to comply with its own statutory notice requirements and its own procedures, even after it had actual knowledge of the interest of D&M Financial in the Henderson Avenue property,” Justice Patti Kitching wrote for the court.

This lack of notice affected D&M’s due process right. “Health and Safety Code § 17980, subdivision (b) codifies a property owner’s constitutional right to choose to repair or to demolish a building that is substandard or a nuisance,” Kitching wrote. “The city’s failure to provide notice to D&M Financial precluded D&M Financial from exercising its repair option, and thereby violated its due process rights.”

In an unpublished portion of the option, the court quickly dismissed the city’s argument that the BEAC’s determination the property was substandard precluded an award for inverse condemnation.

The Case:
D&M Financial Corporation v. City of Long Beach, No. B173977, 06 C.D.O.S. 935, 2006 DJDAR 1284. Filed January 30, 2006.

The Lawyers:
For D&M: William Litvak, Dapeer, Rosenblit & Litvak, (310) 477-5575.
For the city: Randall Fudge, city attorney’s office, (562) 570-2200.